UK refiners must optimise diesel production to compete - committee

26 July 2013 14:27[Source: ICIS news]

LONDON (ICIS)--Refineries in the UK need to optimise diesel production in line with rising domestic demand if they are to maximise margins and better compete with imports, a committee appointed by the House of Commons said on Friday.

The Energy and Climate Change Committee published evidence from several respondents, including key industry players, on an inquiry into pressures on the UK oil refining industry and the implications for security of supply.

The Minister of State for Energy, Michael Fallon MP said: “Our refineries are petrol-facing, if you like, and not diesel-facing, and although they compete well at the moment in Europe, the long-term trend therefore puts them at a disadvantage.”

Diesel demand is anticipated to increase by approximately 1% per year and petrol demand to decrease by 5-7% per year.

“They are producing too much petrol, not enough high-value diesel or jet and they are less likely to compete with the refineries of the future, and therefore the investment case for investing in them probably will get weaker,” the Minister said.

The mis-match between supply and demand would result in a loss of profitability for the UK refining sector, and consequently loss of investor confidence, the evidence suggested.

The shortfall has so far been made up by the import industry.

Increased global demand for refined oil products is being met by refineries in the Middle East and Asia – India and China in particular – and oil major Shell, who gave evidence to the Committee, and suggested that there may now be a refining overcapacity.

Mr Hunter, Supply Contracts and Negotiations Manager, Shell said: "We exited the UK, and we have exited a number of refineries across the world over the last few years, because we want to reduce our overall exposure to the global refining margin.”

In 2012, refined oil products provided around one third of the primary energy used in the UK. There are seven refineries in the UK. Domestic production has, however, been in decline since the middle of the last decade, while imports have increased.